A fourplex at 620k against a passive position. The occupancy year won't pencil.

All four occupied means you inherit four tenancies you didn't screen. Ask for the actual leases, the ledgers going back a year, and proof of what deposits are held and where. Deposit handling rules vary by state, and in several states the money has to sit in a separate account with interest, so the seller crediting you at closing may not be enough by itself. I'd also want to know which of those four are month to month, because that changes what you can do with the unit you want to live in.

What's the lot doing for you. 620 for four units in a 1974 building means most of your basis is in a depreciating structure, and if the land is a fifth of the price you're buying a wasting asset with a rent stream attached. I'd want the assessor's land-to-improvement split and I'd want to know the zoning, because a fourplex lot that permits more density has an exit that has nothing to do with cap rates. That's the part I'd research before I argued about the boiler.

Your 38 percent expense ratio is the assumption carrying the whole analysis, and for a 1974 building with owner-paid water, sewer and trash plus a shared boiler it's optimistic. Small multifamily of that vintage more commonly runs 40 to 50 percent once you fund capex honestly. Move to 45 and your NOI drops to about 36,300, a 5.9 cap on ask, which changes the conversation with the seller rather than the conversation with your lender.

On the financing fork, the mechanism you're relying on is real. Two to four unit properties qualify for residential loan programs, which is why the sector holds an advantage over five-plus units where commercial debt applies. What you should not assume is the specific down payment or rate you've been quoted verbally. Owner-occupancy programs on 3-4 unit properties often carry additional requirements, including reserve minimums and, on some government-backed products, a self-sufficiency calculation where the unit rents must cover the payment. Whether that test applies to your file depends on the program and the current guidelines, so get the loan estimate and the occupancy conditions in writing before you underwrite around them.

The comparison you actually posed is between 400 a month of negative carry for a year against roughly 100,000 of additional down payment. At any reasonable cost of capital the occupancy path wins on that arithmetic alone. The reason to reject it is that you don't want to live there, which is a real reason and not a financial one.

One more thing. Your post-move-out breakeven assumes the fourth unit re-rents at 1,475 with no downtime. Model 45 days empty and a 3,000 turn, because that's the year you'll have the least cash on hand.

How much cash are you keeping after close on the occupancy path. If 5 percent down means you're in for 31,000 plus closing and you're then negative 400 a month, I'd want to see six months of full PITI sitting untouched before I signed anything. That's the piece I keep rebuilding in my own plan for a much smaller purchase, and it's always the thing that turns a good deal into a stressful one.

I own a fourplex from 1971 and my trailing twelve expense ratio is 47 percent with me doing the small stuff myself. Water bill alone came in at 4,900 last year because a running toilet in a back unit went unreported for two months. @rena-expert's 45 is closer than your 38. Also, 4,000 of seller maintenance on four units is not a number, it's a hope. Ask for the actual invoices and if he can't produce them, underwrite as if the deferred work is real, because it is.

Get estoppel certificates signed by each tenant, not just the seller's rent roll. I've read rent rolls that showed 1,450 where the tenant had a side agreement for 1,300 in exchange for mowing, and that agreement follows the tenancy in most states even when it's verbal. The estoppel is where the tenant tells you in their own signature what they pay, what they owe, what deposit they gave and what the landlord promised them. Also read the existing leases for any option or renewal language before you plan on occupying a unit.

How long do you intend to hold. Everything you wrote is a year-one problem, and a year-one problem is only a problem if you're planning to sell in three. If this is a fifteen year hold, negative 400 for twelve months is noise against amortization and rent growth, and the boiler gets replaced once and forgotten. If you don't know the hold period yet, that's the thing to settle before the expense ratio argument.

Have you priced a duplex in the same area. Half the units, half the moving parts, same residential financing, and you'd likely have positive cash flow from month one instead of a year of carrying it. I understand the pull of four rents from one closing, but I'd rather own the boring thing that pays me than the interesting thing I'm subsidizing. Not everyone agrees with that and I've been talked out of it before.

@arbor is asking the right question and it usually gets waved off. I've held land through two cycles and the buildings I regret are the ones where I paid structure prices for a dirt-value location. Pull the assessor split, then pull sales of similar lots nearby, keeping in mind that around a dozen states don't publish sale prices at all so you may need a broker or a title contact for that. If the land is carrying real weight your downside looks very different.

Dumb question from someone brand new here. Why does five units change the loan at all, is it just a rule the banks agreed on?

@rigging, five units and up gets underwritten as commercial property, so the loan looks at the building's income and usually comes with a shorter term and a balloon. Two to four stays on the residential side. @meridian, the due diligence items I'd insist on are a sewer lateral scope, a full electrical panel look at 1974 vintage, and separate verification that the water is actually one meter for the building. I've walked from two deals on the scope camera alone. Also confirm whether the seller is holding any prepaid rent, because that shows up as a credit that isn't income.

Your turn budget for the unit you move out of is going to be wrong. Every owner-occupied unit I've turned came with a punch list the owner stopped seeing after month three, and the real number for a 2-bed with paint, floors and a make-ready is closer to 5,000 than 3,000 once you touch anything. Ask me how I know. Budget the higher number and be pleased if it comes in low.

On the mechanical side, one boiler serving four units also means one thermostat argument. Check how the heat is zoned, because if there's a single zone you'll be fielding calls from a tenant who's cold and a tenant who's cooking. Retrofit to individual units on a 1974 building is expensive and disruptive. If the seller has a service contract, ask for the last three years of service tickets, they tell you more than the inspection will.

You put 8 percent management in the model and then said you'd self-manage. Keep the 8 percent in and pay yourself, because the day you get tired the expense becomes real and your cash flow doesn't change. What I'd add is that four units is an awkward size for a management company, so a lot of us price it flat rather than as a percentage and the flat number is often higher than 8 percent of 5,800 works out to. Call two local firms and ask what they'd actually charge on this building before you assume 8.